Apple Revenue Grab May Rock the Boat, Not Capsize It

There’s a lot of chatter out there that Apple’s new subscription plans could endanger its relationship with app developers and content providers, and might even incur unwanted legal attention. Apple may be in for a bumpy ride as it moves to implement the new system, but don’t think it’s anywhere close to capsizing.

An Apple-imposed arrangement that requires us to pay 30 per cent of our revenue to Apple, in addition to content fees that we pay to the music labels, publishers and artists, is economically untenable. The bottom line is: we would not be able to offer our service through the iTunes store if subjected to Apple’s 30 per cent monthly fee vs a typical 2.5 percent credit card fee.

Note, however, that Rhapsody’s response wasn’t to remove its iOS applications in protest. In fact, it signalled its intention to continue to offer its service uninterrupted on the platform in its current form until it was no longer able to do so. Other parties in a similar situation as Rhapsody, including Amazon, which distributes books (incurring additional content fees to publishers) and Netflix (which has to license all of its videos from studios) have notably silent on the issue thus far.

Silent, too, are publishers, which are the parties referred to specifically in Apple’s new subscription pricing plans. News Corp. is obviously on board and happy to accept Apple’s terms for the time being, since in-app subscriptions were first introduced in its iPad newspaper app, The Daily. Popular Science, Elle and Nylon followed suit shortly after Apple’s announcement yesterday with in-app subscriptions of their own. While that isn’t exactly an overwhelming tide of support, it’s far from an outright negative response.

The truth is that publishers and distributors are watching and waiting, because they can’t afford to do otherwise. Rhapsody can’t afford to acquiesce to Apple’s new demands, but it equally can’t afford to abandon the platform. Others like Amazon are probably in the same boat, working behind the scenes with Apple to see if compromise is possible and waiting to see where the chips will fall. But hoping for a compromise or a retreat by Apple might ultimately prove fruitless. Analyst Mark Little from technology research firm Ovum sums up quite well why Apple might even be willing to risk the loss of these partners in the end:

[I]t is unlikely the new subscription model will upset iPhone owners and aspirers enough to switch to Android; interestingly the new model could also helps clear the ‘idecks’ of competition, and the loss of the likes of Rhapsody and the Kindle Store can be easily replaced by Apple services such as iTunes or iBook and exclusives such as ’The Daily.’

Apple launched the iPhone platform without app content partners, and it still has content libraries of its own in place through iTunes and iBooks, as well as the largest library of apps available to a mobile platform, and at least some publishing partners willing to accept its revenue-sharing terms in search of broader audiences. And what choice do those publishers really have? Magazines and print publications turned to the iPad in the first place because of dwindling print sales. Android looks to possibly provide safe harbor for those media companies with its new micropayment system, but in the end, weren’t those companies looking to iOS to shore up reader and viewership numbers, not the other way around?

Record companies and film and television studios found (and likely continue to find) Apple’s terms onerous and unfair. Yet both ultimately accepted that in terms of digital distribution (more and more the distribution method of choice for consumers), Apple was really a distributor they couldn’t live without. This latest ultimatum to publishers isn’t an unprecedented tipping point; it’s the next natural step in Apple’s evolution as a distribution channel. As for antitrust concerns, that’s also nothing new for Apple, and the company has proven well-able to answer such questions in the past without significantly altering the way it does business.

In the end, Apple’s new subscription rules might slightly alter the composition of the App Store, but it won’t change its reach or influence on the mobile market. A 30-percent cut may be too much for some to swallow, but for the thousands of companies that wouldn’t have a revenue model to begin with without the App Store, it’ll still be the best deal in town.